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"This is certainly a good time to accumulate, especially the banking counters,"  says Rakuten Trade  head of research Kenny Yee(pic).
"This is certainly a good time to accumulate, especially the banking counters," says Rakuten Trade head of research Kenny Yee(pic).

"This is certainly a good time to accumulate, especially the banking counters," says Rakuten Trade head of research Kenny Yee(pic).

PETALING JAYA: Foreign funds will possibly make their way back to Malaysia by the third quarter of this year to take advantage of the current reasonable valuation and cheap ringgit, says online equity broker Rakuten Trade.

Head of research Kenny Yee said once these funds flowed in, it would be for the longer haul, playing their role in strengthening the ringgit, which is expected to improve up to RM3.90 against the US dollar by the year-end.

Malaysia has been the worst performer in the equities market within the region but Rakuten is of the opinion that the reversal of this might be sooner than expected, on the back of the revival and kick-starting of mega projects by the “more business-minded” Malaysian government.

Yee said the spillover effect from the mega projects into other sub-segments was very high and this would improve economic activity in Malaysia.

The net outflow of foreign funds from equities last year was RM11.64bil. Year-to-date, the net outflow is RM2.57bil.

“I think this is also due to the fears over the Russell development (possible exclusion of Malaysia’s debt by FTSE Russell). Foreign funds are pulling out with the expectation that Malaysia would be out of the index.

“That fear is over-hyped. Like it or not, given time, this may evaporate. I don’t think the current worries should be our major worry,” he said, adding that once foreign funds returned to Malaysia with the FBM KLCI on the uptrend, investors would see a potential bull run in the local market.

The East Cost Rail Link (ECRL) and Bandar Malaysia projects amounting to about RM200bil are hogging the limelight but Yee said more could be expected, as the government is pushing for mega infrastructure projects to revive the ailing domestic economic activities, as the multiplier and spillover effects of the construction industry are the fastest and widest.

Analysts at Macquarie Group Ltd recently said that Malaysian equities might be close to a turnaround on the back of the government’s increasing support.

“Reforms at state-linked companies, more political clarity and stimulus could also see the FBM KLCI surging up to 1,800 in the base scenario, or even reaching 1,900 in the bullish case,” it said.

Bloomberg reported that the index is showing some signs of revival, climbing 1% last week, halting five straight weeks of declines, the longest stretch of losses since 2015.

Macquarie said fiscal stimulus, per resurrection of the ECRL and Bandar Malaysia projects, is returning, oil prices are exceeding target and liquidity is ample.

“Government policy-centric catalytic news flow alone could allow the KLCI to recover to 12-month highs of 1,850,” the investment bank said in a note, adding that it expected similar developments to happen with the MRT 3 and high-speed rail project, as well as in the telecoms sector and within the Petroliam Nasional Bhd group of companies.

“The main risk remains Malaysia’s potential exclusion from FTSE Russell’s World Government Bond Index, which could lead to US$23bil of government bond outflows, as other index providers follow suit and worsen foreign selling in the country’s equities,” the bank said.

Meanwhile, Yee noted that the mega projects would be positive for the equity market by attracting more foreign funds, especially from China, and this would see the ringgit strengthening further against the greenback.

The subsiding trade war between the United States and China should be a positive sign for the Chinese yuan and the ringgit because the ringgit moves closely alongside the yuan against the US dollar.

Among other positive spillover effects from China to Malaysia are China’s MSCI realignment, which is anticipated to draw US$80bil of foreign funds into the Chinese market, and the proposed reduction in the reserve requirement ratio for China’s banking sector, which is currently at 14.5% for large banks and 12.5% for smaller banks. Every 1% cut translates to around US$120bil flowing back into the system.

On a separate note, Yee said Malaysian equities were nicely priced and blue chips were now ripe for the picking after undergoing all the selldown.

“We’ve also seen liquidity flowing back into the small and big-cap space, so that should be another positive sign for enhanced velocity within the global market.

“A lot of investors are not particularly positive on the FBM KLCI but this is certainly a good time to accumulate, especially the banking counters,” he said.

Rakuten is maintaining its expectation that the benchmark index would hit 1,760 points by the year-end, premised on a 2.4% corporate earnings growth.

On how banking stocks would be impacted if Bank Negara cut the overnight policy rate, Yee said there was no need for the central bank to do so, as things were still running well at the moment.

The impact on banks’ earnings, he said, would be rather minimal, as it would be offset by a higher loan growth in line with the mega projects.

Among the stocks picked by Rakuten are Malayan Banking Bhd , Public Bank Bhd , Genting Malaysia Bhd , Hartalega Holdings Bhd , Top Glove Corp Bhd , Crest Builder Holdings Bhd , Econpile Holdings Bhd , Kelington Group Bhd and Malaysia Building Society Bhd .

On the bullish momentum of the construction sector, it recommends Sunway Construction Group Bhd , IJM Corp Bhd , George Kent (M) Bhd , Gamuda Bhd , WCT Holdings Bhd , TRC Synergy Bhd , Kimlun Corp Bhd and Vizione Holdings Bhd .

Meanwhile, Bursa Malaysia migrated to a two-day settlement cycle (T+2) from T+3 yesterday.

This is among Bursa’s ongoing efforts to improve operational efficiency and reduce systemic risk and align with the clearing and settlement process of major global exchanges in the US, Europe and Asia-Pacific, which are already operating T+2.Meanwhile, Yee noted that the mega projects would be positive for the equity market by attracting more foreign funds, especially from China, and this would see the ringgit strengthening further against the greenback.

The subsiding trade war between the United States and China should be a positive sign for the Chinese yuan and the ringgit because the ringgit moves closely alongside the yuan against the US dollar.

Among other positive spillover effects from China to Malaysia are China’s MSCI realignment, which is anticipated to draw US$80bil of foreign funds into the Chinese market, and the proposed reduction in the reserve requirement ratio for China’s banking sector, which is currently at 14.5% for large banks and 12.5% for smaller banks. Every 1% cut translates to around US$120bil flowing back into the system.

On a separate note, Yee said Malaysian equities were nicely priced and blue chips were now ripe for the picking after undergoing all the selldown.

“We’ve also seen liquidity flowing back into the small and big-cap space, so that should be another positive sign for enhanced velocity within the global market.

“A lot of investors are not particularly positive on the FBM KLCI but this is certainly a good time to accumulate, especially the banking counters,” he said.

Rakuten is maintaining its expectation that the benchmark index would hit 1,760 points by the year-end, premised on a 2.4% corporate earnings growth.

On how banking stocks would be impacted if Bank Negara cut the overnight policy rate, Yee said there was no need for the central bank to do so, as things were still running well at the moment. The impact on banks’ earnings, he said, would be rather minimal, as it would be offset by a higher loan growth in line with the mega projects.

Among the stocks picked by Rakuten are Malayan Banking Bhd, Public Bank Bhd, Genting Malaysia Bhd, Hartalega Holdings Bhd, Top Glove Corp Bhd, Crest Builder Holdings Bhd, Econpile Holdings Bhd, Kelington Group Bhd and Malaysia Building Society Bhd.

On the bullish momentum of the construction sector, it recommends Sunway Construction Group Bhd, IJM Corp Bhd, George Kent (M) Bhd, Gamuda Bhd, WCT Holdings Bhd, TRC Synergy Bhd, Kimlun Corp Bhd and Vizione Holdings Bhd.

Meanwhile, Bursa Malaysia migrated to a two-day settlement cycle (T+2) from T+3 yesterday. This is among Bursa’s ongoing efforts to improve operational efficiency and reduce systemic risk and align with the clearing and settlement process of major global exchanges in the US, Europe and Asia-Pacific, which are already operating T+2.
  

Malaysia has been the worst performer in the equities market within the region but Rakuten is of the opinion that the reversal of this might be sooner than expected, on the back of the revival and kick-starting of mega projects by the “more business-minded” Malaysian government.

Yee said the spillover effect from the mega projects into other sub-segments was very high and this would improve economic activity in Malaysia.

The net outflow of foreign funds from equities last year was RM11.64bil. Year-to-date, the net outflow is RM2.57bil.

“I think this is also due to the fears over the Russell development (possible exclusion of Malaysia’s debt by FTSE Russell). Foreign funds are pulling out with the expectation that Malaysia would be out of the index.

“That fear is over-hyped. Like it or not, given time, this may evaporate. I don’t think the current worries should be our major worry,” he said, adding that once foreign funds returned to Malaysia with the FBM KLCI on the uptrend, investors would see a potential bull run in the local market.

The East Cost Rail Link (ECRL) and Bandar Malaysia projects amounting to about RM200bil are hogging the limelight but Yee said more could be expected, as the government is pushing for mega infrastructure projects to revive the ailing domestic economic activities, as the multiplier and spillover effects of the construction industry are the fastest and widest.

Analysts at Macquarie Group Ltd recently said that Malaysian equities might be close to a turnaround on the back of the government’s increasing support.

“Reforms at state-linked companies, more political clarity and stimulus could also see the FBM KLCI surging up to 1,800 in the base scenario, or even reaching 1,900 in the bullish case,” it said.

Bloomberg reported that the index is showing some signs of revival, climbing 1% last week, halting five straight weeks of declines, the longest stretch of losses since 2015.

Macquarie said fiscal stimulus, per resurrection of the ECRL and Bandar Malaysia projects, is returning, oil prices are exceeding target and liquidity is ample.

“Government policy-centric catalytic news flow alone could allow the KLCI to recover to 12-month highs of 1,850,” the investment bank said in a note, adding that it expected similar developments to happen with the MRT 3 and high-speed rail project, as well as in the telecoms sector and within the Petroliam Nasional Bhd group of companies.

“The main risk remains Malaysia’s potential exclusion from FTSE Russell’s World Government Bond Index, which could lead to US$23bil of government bond outflows, as other index providers follow suit and worsen foreign selling in the country’s equities,” the bank said.

Meanwhile, Yee noted that the mega projects would be positive for the equity market by attracting more foreign funds, especially from China, and this would see the ringgit strengthening further against the greenback.

The subsiding trade war between the United States and China should be a positive sign for the Chinese yuan and the ringgit because the ringgit moves closely alongside the yuan against the US dollar.

Among other positive spillover effects from China to Malaysia are China’s MSCI realignment, which is anticipated to draw US$80bil of foreign funds into the Chinese market, and the proposed reduction in the reserve requirement ratio for China’s banking sector, which is currently at 14.5% for large banks and 12.5% for smaller banks. Every 1% cut translates to around US$120bil flowing back into the system.

On a separate note, Yee said Malaysian equities were nicely priced and blue chips were now ripe for the picking after undergoing all the selldown.

“We’ve also seen liquidity flowing back into the small and big-cap space, so that should be another positive sign for enhanced velocity within the global market.

“A lot of investors are not particularly positive on the FBM KLCI but this is certainly a good time to accumulate, especially the banking counters,” he said.

Rakuten is maintaining its expectation that the benchmark index would hit 1,760 points by the year-end, premised on a 2.4% corporate earnings growth.

On how banking stocks would be impacted if Bank Negara cut the overnight policy rate, Yee said there was no need for the central bank to do so, as things were still running well at the moment.

The impact on banks’ earnings, he said, would be rather minimal, as it would be offset by a higher loan growth in line with the mega projects.

Among the stocks picked by Rakuten are Malayan Banking Bhd, Public Bank Bhd, Genting Malaysia Bhd, Hartalega Holdings Bhd, Top Glove Corp Bhd, Crest Builder Holdings Bhd, Econpile Holdings Bhd, Kelington Group Bhd and Malaysia Building Society Bhd.

On the bullish momentum of the construction sector, it recommends Sunway Construction Group Bhd, IJM Corp Bhd, George Kent (M) Bhd, Gamuda Bhd, WCT Holdings Bhd, TRC Synergy Bhd, Kimlun Corp Bhd and Vizione Holdings Bhd.

Meanwhile, Bursa Malaysia migrated to a two-day settlement cycle (T+2) from T+3 yesterday.

This is among Bursa’s ongoing efforts to improve operational efficiency and reduce systemic risk and align with the clearing and settlement process of major global exchanges in the US, Europe and Asia-Pacific, which are already operating T+2.Meanwhile, Yee noted that the mega projects would be positive for the equity market by attracting more foreign funds, especially from China, and this would see the ringgit strengthening further against the greenback.

The subsiding trade war between the United States and China should be a positive sign for the Chinese yuan and the ringgit because the ringgit moves closely alongside the yuan against the US dollar.

Among other positive spillover effects from China to Malaysia are China’s MSCI realignment, which is anticipated to draw US$80bil of foreign funds into the Chinese market, and the proposed reduction in the reserve requirement ratio for China’s banking sector, which is currently at 14.5% for large banks and 12.5% for smaller banks. Every 1% cut translates to around US$120bil flowing back into the system.

On a separate note, Yee said Malaysian equities were nicely priced and blue chips were now ripe for the picking after undergoing all the selldown.

“We’ve also seen liquidity flowing back into the small and big-cap space, so that should be another positive sign for enhanced velocity within the global market.

“A lot of investors are not particularly positive on the FBM KLCI but this is certainly a good time to accumulate, especially the banking counters,” he said.

Rakuten is maintaining its expectation that the benchmark index would hit 1,760 points by the year-end, premised on a 2.4% corporate earnings growth.

On how banking stocks would be impacted if Bank Negara cut the overnight policy rate, Yee said there was no need for the central bank to do so, as things were still running well at the moment. The impact on banks’ earnings, he said, would be rather minimal, as it would be offset by a higher loan growth in line with the mega projects.

Among the stocks picked by Rakuten are Malayan Banking Bhd, Public Bank Bhd, Genting Malaysia Bhd, Hartalega Holdings Bhd, Top Glove Corp Bhd, Crest Builder Holdings Bhd, Econpile Holdings Bhd, Kelington Group Bhd and Malaysia Building Society Bhd.

On the bullish momentum of the construction sector, it recommends Sunway Construction Group Bhd, IJM Corp Bhd, George Kent (M) Bhd, Gamuda Bhd, WCT Holdings Bhd, TRC Synergy Bhd, Kimlun Corp Bhd and Vizione Holdings Bhd.

Meanwhile, Bursa Malaysia migrated to a two-day settlement cycle (T+2) from T+3 yesterday. This is among Bursa’s ongoing efforts to improve operational efficiency and reduce systemic risk and align with the clearing and settlement process of major global exchanges in the US, Europe and Asia-Pacific, which are already operating T+2.

http://www.thestar.com.my/business/business-news/2019/04/30/foreign-funds-may-return-by-q3/

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